Annually, Forbes publishes a list of 100 highest paid celebrities in the world. In 2016, over 20% of the celebrities on the list were under the age of 30. In fact, three out of the top ten were in their twenties. More and more younger people are gaining wealth, whether it is through selling tech startups, inheritance, or other means. Accumulating wealth is important, but a big payday especially at a young age can (and often does) lead to reckless behavior.
A notorious example is Nicolas Cage, who started acting in films at 18 and made more than $150 million. He ended up with an extravagant spending habit, squandering all of his money and owing the IRS more than $6 million in taxes. Thus, proper estate planning is imperative to preserve one’s wealth while achieving one’s financial goals.
Had Mr. Cage considered putting a portion of his wealth into a self-settled trust, he may have avoided his current financial situation. A self-settled trust is an instrument through which a grantor (who is also the beneficiary) places assets into a trust for his/her benefit and protects those assets from most creditors. To set up a self-settled trust, one would relinquish his/her assets to the trust and select a trustee to control the assets. The trustee would distribute income from the trust to the grantor/beneficiary for appropriate needs. There are only 14 states, including Nevada, that allow a self-settled trust. The trust must be formed and the trustee must reside in one of these states. Since Mr. Cage is a Nevada resident, this would not have been difficult for him.
Mr. Cage would have benefitted from this trust as it would have prevented him from recklessly spending the entirety of his wealth. The trustee would have made distributions to Mr. Cage at his/her discretion for paying taxes, necessary living expenses, and other appropriate uses. Mr. Cage would have been allowed to freely spend the portion of his wealth not in the trust while his trust distributions paid for essential expenses and responsibilities. This way, Mr. Cage would not have ended up owing the IRS millions of dollars.